Joseph Kennedy, President Kennedy’s father, was reputed to have said that he realized the 1929 stock market crash was imminent when his shoeshine boy started sharing stock market tips. An observer of the increasing cultural and political centrality of crypto might be excused for thinking the same thing today about digital assets.

Whether a collapse or significant correction in the price of digital assets will lead to a financial crisis depends, in large part, on how enthusiastically additional investors flock to digital assets. The more people and institutions hold digital assets, and the more they became part of the mainstream financial sector, the more likely any such correction will lead to broader chaos.

Two recent developments make that development more likely. First, on August 7, 2025, President Trump issued an Executive Order (“EO”) regarding the inclusion of alternative assets in 401(k) and similar defined-contribution plans. The EO defined “alternative assets” to include “holdings in actively managed investment vehicles that are investing in digital assets.” The SEC was directed “to facilitate access to investments in alternative assets by participants in participant-directed defined-contribution retirement savings plans. Such facilitation may include, but not be limited to, consideration of revisions to existing SEC regulations and guidance relating to accredited investor and qualified purchaser status, to accomplish the policy objectives of this order.”

Even with the recent run-up in its price, the total market cap for bitcoin is only a bit more than $2 trillion.

If there is significant demand for inclusion of digital assets in defined contribution plans, supply will likely follow. But is there enough high quality supply to meet that demand? For example, even with the recent run-up in its price, the total market cap for bitcoin is only a bit more than $2 trillion. And that is most of the aggregate market cap for all cryptocurrencies, which sits at around $4 trillion. Ether, the next largest, is around $500 billion. And much of that is likely held by long-term investors, who might not be eager to part with their holdings, limiting the supply available for purchase. Reported figures put assets in defined contribution plans at over $12 trillion.

If a significant percentage of plan participants seek digital asset investments, where will the supply come from? Will investment firms be forced to scramble and load up on less pedigreed coins to meet the expected demand? Will meme coins and other more speculative tokens be part of the mix?

These are volatile assets whose value is typically disconnected from any significant use case. While we are in a period of substantial growth in digital  asset values, there is no assurance this upward trend will continue indefinitely. If defined contribution plans see a sizeable shift to digital assets and there is notable collapse in price, what will happen? Will this affect retirements? Will plan participants have to sell off other assets under pressure to make up the shortfall? If there is such a sell-off, what will the aggregate impact be on markets?

Will the potential proliferation of stablecoins, which are in effect digital dollars, replicate the pre-Civil War era instability that led to the creation of a national currency?

Another potential systemic risk is the recent approval of stablecoins in the so-called GENIUS Act. In some ways, this harks back to the monetary system in effect through the Civil War era, in which state banks were authorized to issue currency. Often, notes issued by a bank in one state would not be accepted in other states, and if so, only with a discount, complicating interstate business. The National Bank Act of 1963 and allied legislation was intended, in large part, to address the issue of competing currencies, even if all were dollar-denominated.

Will the potential proliferation of stablecoins, which are in effect digital dollars, replicate the pre-Civil War era instability that led to the creation of a national currency? Are we so far removed from that history that we are repeating it? And will it lead to additional instability, especially if it turns out that some stablecoins have insufficient reserves?

Allied to these developments is SEC Chair Atkin’s recent statement that only a small subset of digital assets are not securities (and thus not subject to SEC oversight), which is consistent with the approach the SEC has taken. Thus even as activity in this area expands, regulatory attention paid to it will shrink.

While it is impossible to predict whether the next financial crisis will be linked to digital assets, the increasing acceptance of digital assets by investors, as well as a lighter regulatory touch, unfortunately makes it all the more likely.

Howard Fischer is a partner in the litigation and white collar departments of Moses & Singer LLP. Howard is recognized as a leading expert and commentator on securities disputes, enforcement proceedings, and securities regulations, including related to digital assets.

As a former Senior Trial Counsel at the US SEC, he was entrusted with some of the most sophisticated and noteworthy cases that the federal government prosecuted in the last decade.